Strategic Analysis - Daimler Chrysler Merger

1. Could the proposed benefits of the Daimler-Chrysler merger have been achieved through a strategic alliance with little or no equity changing hands?

2. Could the benefits of the Renault-Nissan alliances have been achieved more easily (or less costly) through a merger or a full acquisition of Nissan by Renault?

1. Let’s consider the most relevant benefits of the Daimler-Chrysler merger:

• Higher industry concentration (for middle and long term profitability)
• Daimler-Benz is stronger in Europe and has a global distribution network while Chrysler is stronger North America. Integration/Merger would push sales (Daimler in North America, Chrysler in Europe etc) → entering new markets, increasing market power, spreading the risk geographically
• Complementary skills, reputation and culture: Chryslers reputation and Knowhow for product development and creativity and Daimlers engineering reputation/knowledge perfectly supplement each other (→ productivity growth, less costs, better quality, synergies, bigger scale)
• Chryslers brand diversity/product development reduced Daimler’s risk that is associated with its focus on the automobile premium segment

Not every (proposed) benefit of the merger can be “replaced” by a strategic alliance or some equity changing hands. As those companies would benefit from a reciprocal distribution alliance (so Daimler could serve the North American and Chrysler Europe’s market better) and expansion is expensive, a big part of the benefits can be duplicated. However, the synergies associated with complementary skills and culture probably cannot be duplicated as those skills have a high value for those companies so they cannot risk to “lose” those skills or core strengths to a competitor. The same goes for the 3rd benefit bullet point. Nevertheless, the benefits of the complementary skills/culture between Chrysler and Daimler can be utilized through an alliance (e.g. lower costs through a higher scale), but not as effective as through a merger.

2. First, let’s take a look at some benefits of the alliance:

• Spreading risk geographically, as both have different initial markets (Nissan strong in US and Asia, Renault in Europe and lower South America)
• Complementary skills (Nissans technology & Renaults design and development skills)
• Bigger scale/econ. of scale
• Combined technological “scale”

The goal of the alliance is, of course, to maximize those benefits while keeping all the risks and costs associated with a merger and full integration low. The Alliance uses the benefits well, e.g. sharing warehouses, containers or even purchasing for both companies for a higher scale and lower costs. Merging, those benefits but would not significantly change while the risk (and the cost) of a failed merger would increase massively (“(…) conventional, top-down acquisitions in the auto industry in the past decade failed.” “It is not validated by any example in the car industry that this works."^[1]) as they would have to adapt their cultures and integrate.

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